Page 27 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes  allowing redemption premium up to 5% of the face value and allowing the company to
issue non-convertible debentures to have a buy-back at par from any debenture holder
whose total holding does not exceed ` 40,000 crore and has held debentures for at least one
year,

 permitting FIIs to invest in government securities (which account for more than 60% of
the debt market),
 entry of profitable PSUs in new issue market with issues of bonds to mutual funds,
commercial banks and other commercial institutions, permitting the public sector financial
institutions to participate/underwrite debenture issues of MRTP/FERA up to 5% of each
issue of debentures and relaxation of debt-equity norms from 1:1 to 2:1.
A long period of lacklustre activity in equity issue market was arrested in 2003-04 when new
equity issues floated surged to ` 2323 crore as against ` 460 crore in the previous year. High
tempo in the equity issue market tended to persist in the subsequent years so much so that funds
mobilized through floatation of 136 equity issues soared to ` 29,756 crore in 2006-07 accounting
for over 99% of the total resources raised during the year.
The main factors that contributed to the upsurge in new equity issues were:
 robust economic and industrial health of the country
 higher return on equity shares

 buoyancy in the secondary market
 increased enthusiasm among the investment community
 higher saving rate and

 participation of retail investors in the equity market, that have pumped in about ` 17,500-
18,000 crore into the equities during 2006 as compared to ` 8000 crore in 2005.
However, retail investors' enthusiasm for equity offerings disappeared during 2008-09 because
of their cautious approach and volatility in markets. Average subscription of retail investors to
IPOs has dropped dramatically from 19 percent in 2004 to 3 percent in 2009. It is hoped that with
recovery of economy and market stability they will be more inclined to invest.
Also garnering of resources by Indian corporates from international capital markets through
ADRs and GDRs. Thus, funds raised through Euro issues soared to ` 26,556 crore in 2007-08 from
` 3,098 crore in 2003-04. Most of the Euro issues were made by private sector finance companies.

Size-wise New Issues

Another qualitative dimension of new issue market is size of the new issue. It may be noted
from Table below that:
 annual average absolute amount of fresh capital raised by non-government public limited
companies shot up significantly from ` 28.5 crore during 1951-60 to over ` 38,000 crore
during 2003-08, clearly indicating burgeoning expansion of new issue activity in India
during the post-reform period.
 In 1999-2000, the average size of IPOs was ` 100 crore which shot up to more than ` 700
crore by 2005-06.
 Also, the average size of issue, including listed as well as IPOs increased over five fold
from ` 94 crore to 497 crore. Thus, companies came to the market with issues of large size.

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